Tags: Koesterich | stock | market | value

BlackRock's Koesterich: Stock Market Is 'Flashing Yellow'

By    |   Thursday, 11 September 2014 03:29 PM

Many stock market strategists have recently raised their targets for the S&P 500 index, which hit a record high last week.

But BlackRock chief investment strategist Russ Koesterich has adopted a cautious tone. Thanks to the economy's sluggish growth in the last five years, strong cost controls allowed smaller revenue gains to have a bigger impact on earnings, he tells Forbes.

"Companies have been ridiculously profitable, margins have been ridiculously high," he explains. But valuations have soared too.

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For example, Robert Shiller's cyclically adjusted price-earnings ratio for the S&P 500, based on 10 years of earnings, now stands at 26.4. That's the fourth highest reading since 1881, topped only in 1929, 1987 and 2000. Those peaks preceded market crashes, of course.

So the S&P 500 doesn't have a green light for the next five years to match the 199 percent gain of the last five, Koesterich says. "I'd say we're flashing yellow."

Piper Jaffray analysts are among those more bullish than Koesterich. They predict the S&P 500 will end 2014 at 2,100 and 2015 at 2,350, up from Thursday's close of 1,997, CNBC reports.

"We suspect that low interest rates, low inflation and dovish Fed policy will continue to underpin this equity bull market for the foreseeable future," the analysts wrote in a report obtained by the news service.

"Given there are 25 percent fewer investable stocks today than there were in the early 2000s, we think the market is primed to go higher when asset allocation shifts toward equities."

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Many stock market strategists have recently raised their targets for the S&P 500 index, which hit a record high last week.
Koesterich, stock, market, value
296
2014-29-11
Thursday, 11 September 2014 03:29 PM
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